Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Dealmaking sank below $3tn for the first time in a decade in 2023, as a cocktail of higher interest rates and escalating geopolitical tension confounded bankers’ hopes that last year’s lull was a one-off.
About $2.9tn worth of transactions were struck globally this year, data from the London Stock Exchange Group shows, down 17 per cent from 2022. It was the first time since 2008-09 that the value of deals announced fell more than 10 per cent for two consecutive years, LSEG said.
“2023 has clearly been a very slow year, more subdued than we expected when you look at the volume of deals,” said Simona Maellare, global co-head of the alternative capital group at UBS.
Europe showed the sharpest drop, down 28 per cent annually, while the Asia-Pacific region was 25 per cent lower and the US 6 per cent.
Dealmakers have had to contend with challenges on multiple fronts. Mergers and acquisitions had already been in decline following a pandemic-era surge in activity, with regulators taking a more muscular approach and the rapid increase in global interest rates cooling the private equity market.
A pair of mega US energy deals from ExxonMobil and Chevron, each worth in excess of $50bn, lifted transaction volumes in the final months of this year. The value of deals struck in the fourth quarter was 28 per cent higher than the third quarter.
However, Israel’s war with Hamas, which started in October, stopped a more widespread dealmaking revival from taking off.
“The regulatory environment has been tricky through the year,” said Mark Sorrell, co-head of global M&A at Goldman Sachs. “As sentiment was improving, you had the Middle East happen.”
Deals from financial sponsors declined 30 per cent over the past year to $562bn. Advisers said private equity groups had difficulty agreeing to valuations on assets. Brookfield’s shelved plans to sell the holiday resort group Center Parcs for more than £4bn exemplified the difficulty finding investors willing to pay up at a time of higher interest rates and inflation.
Private equity groups are expected to come under more pressure to strike deals next year after a prolonged slowdown in activity, dealmakers said.
This year “the successful exits were by the most courageous sellers with the best assets, and every process was more structured and complex”, said Carsten Woehrn, JPMorgan’s co-head of Europe, Middle East and Africa M&A.
“For next year what’s clear is that there is both a willingness and a need to do deals by sponsors,” he said.
A more stringent attitude by competition authorities to enforcement has also deterred companies from launching bids for rivals. Microsoft’s $75bn deal for gaming company Activision Blizzard survived challenges to close after 21 months of uncertainty, but Adobe’s $20bn takeover of software group Figma was abandoned after EU and UK watchdogs launched probes.
Advisers concede that activity may arrive in the second half of 2024 rather than earlier in the new year.
Global investment banking fees were hurt by the slowdown, dropping 8 per cent compared with last year to $105bn. Fees from M&A fell most sharply, down 26 per cent to $29bn, the lowest level since 2016.
Goldman Sachs held the top spot in M&A advisory work, driven by its lead position in the US. Morgan Stanley and JPMorgan came in second and third, leading in Asia and Europe respectively.
Read the full article here